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Market Blog: investors on tenterhooks for bold Fed action

Kesa (KESA.L) shares slump, but 'bid target' ITV (ITV.L) heads for second day of gains.

 
Market Blog: investors on tenterhooks for bold Fed action

16.38: FTSE closes higher ahead of today's US Federal Reserve policy announcement: will optimism for QE3 or an extension of Operation Twist prove misplaced? Here is a summary of the day's market action:

  • FTSE and most European markets edge higher ahead of Fed decision; investors hope for action
  • US markets flat
  • Greek coalition forms government; Antonis Samaras expected to be sworn in as PM later today
  • Severn Trent (SVT.L), United Utilities (UU.L) and Experian (EXPN.L) drop as they go ex-dividend
  • Investors reminded to 'sell' Kesa
  • ITV boosted by bid rumours and broker 'buy' comments
  • UK economy: mixed jobs data & Mervyn King wants more QE

14.45: Wall Street has opened flat as investors wait for the US Fed to make its move – potentially launching new stimulus measures – and digest the news that pro-austerity parties in Greece have formed a new government.

Antonis Samaras of New Democracy, the party that won the most votes at Sunday’s election, is expected to be sworn in as prime minister later today, according to BBC News. His government will also consist of socialists from the Pasok party and Democratic Left

In Britain, the FTSE 100 has held onto its gains, up 25 points to 5,611.

Ryanair take-over bid for Aer Lingus: 'take no action'

12.33: ‘Take no action’ Aer Lingus told shareholders today after a bid from Ryanair to take over the airline: and investors acted swiftly by buying the Aer Lingus shares, pushing the price up 19% this morning to just over €1.

The Irish government, which owns 25% of the Irish flag carrier, followed the airline’s advice – given in a brief regulatory statement – and said no decision had been made on whether to support the bid.

It is the third bid from Ryanair, which is offering €1.30 a share, having been rebuffed twice before.

According to Reuters, Irish prime minister Enda Kenny said in parliament today:

‘Details of the offer have not yet been considered collectively by government… the government would be concerned obviously in terms of competition, in terms of consumer facilities, in terms of price and access to the country.

‘But it is a minority share the government has. We don't have any veto.’

Aer Lingus said a full statement would be issued shortly.

Bank launches loan scheme as markets tread water

11.55: The Bank of England has announced that in the first of its 'ECTR' auctions to provide six months loans – announced last week by a worried Mervyn King – £5 billion was allocated at a spread of 25bps to the Bank rate.

We don’t know how many banks applied, nor which ones.

A quick update on the wider markets:

  • FTSE 100 up 8 points at 5,595 as UK and European markets tread water ahead of Fed announcement which is due this evening.
  • Spanish and Italian borrowing costs have fallen back – in Spain’s case, 10 year government bond yields are back below the 7% danger zone, while Italian equivalents are below 6%
  • Amid the economic weakness the oil price is again testing multi-month lows at $95 dollars

UK unemployment drops by 51,000

10.07: Some mixed numbers on the UK labour market. Here are the highlights:

  • As forecast by economists the unemployment rate was 8.2% of the economically active population, down 0.2% on the quarter
  • There were 2.61 million unemployed people, down 51,000 on the quarter.
  • The employment rate for those aged from 16 to 64 was 70.%, up 0.3% on the quarter.
  • There were 29.28 million people in employment aged 16 and over, up 166,000 on the quarter.
  • Total pay (including bonuses) rose by 1.4% on a year earlier, up 0.5% on the three months to March 2012.
  • In May 2012 there were 1.60 million people claiming Jobseeker’s Allowance. This was up 8,100 compared with April and more than economists expected

Mervyn King over-ruled on QE economy boost

09.47: Mervyn King voted in favour of more quantitative easing at the Bank of England’s policy-setting meeting earlier this month, newly-published minutes have shown.

It was a close call, with four members of the monetary policy committee calling for action, and five against.

The full story here.

'Bid target' ITV tops falling FTSE

09.07: ITV (ITV.L) looks set for a second day of share gains, helped again by bid rumours.

There has been a flurry of speculation that a private equity firm like KKR or European broadcaster like ProSieben may launch a takeover bid for the broadcaster that boasts shows like the X Factor.

Liberum analysts have a ‘buy’ for ITV shares and this morning outlined a couple of good reasons why the company would be a takeover target: it is heavily cash generative and the company’s recent £250 million bond buyback ‘lessens the bond buyback complications inherent in any takeover’.

This same bond buy-back, announced on Monday, saw UBS reiterating their ‘buy’ rating for ITV yesterday.

Goldman Sachs though were less impressed, yesterday downgrading the company from their ‘conviction buy list’ to a mere ‘buy’ due to uncertainty in the broader environment.

As well as garnering multiple 'buy' recommendations from analysts, ITV is a Citywire Top Stock held by both Derek Stuart, manager of the Artemis UK Special Situations Fund , and Nigel Thomas, who runs the AXA Framlington UK Select Opportunities Fund

ITV shares are up 2.1% or 1.6p this morning to 75.8p

Please visit our full site to view this interactive chart

Investors reminded to 'sell' Kesa

08.30: Shares that have gone ex-dividend are dominating the FTSE 100 fallers this morning, led by Severn Trent (SVT.L), United Utilities (UU.L) and Experian (EXPN.L) as they trade without their payout attractions.

One very real faller though, on the FTSE 250, is Kesa Electricals (KESA.L), the retailer operating across Europe.

Although the company’s final results to the end of April were in line with expectations – with pre-tax profits of €59.0 million (2011: €102.4 million) – comments in Kesa’s statement this morning have worried investors.

‘The company worryingly refers to continued tough trading in Europe and changes to management in France,’ said Freddie George of Seymour Pierce, noting that Kesa is a ‘pure play’ on a European consumer who is not likely to spend much amid the eurozone crisis.

George did however welcome the news that Alan Parker, currently chairman of Mothercare, will succeed David Newlands as chairman at Kesa. That’s not enough for Seymour Pierce though, who still rate the shares a ‘sell’ with a price target of 45p; nor will it do for investors who sold this morning, taking Kesa’s shares down 6.3% to 51.7p.

The FTSE 100 has started off lower at 5,575, a drop of 10 points. Markets across the rest of Europe are little moved.

Please visit our full site to view this interactive chart

All eyes on US Fed boost

08.02: Market sentiment looks set to be dominated by anticipation ahead of the US Federal Reserve’s announcement later today, following on from strong gains yesterday.

Investors are hoping the Fed will either launch QE3 or extend its lighter-weight Operation Twist.

European shares were pointing slightly upwards in early trade, after gains in Asia and the US overnight.

A communique drafted at the end of the G20 summit in Mexico says eurozone members of the G20 have committed to breaking the ‘feedback loop’ between sovereigns and banks. It says they ‘will take all necessary policy measures to safeguard the integrity and stability of the area’

Tomorrow brings a meeting of eurozone finance ministers and then the big European summit takes place.

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